Goodbye to a decade of 250% gains

Thu, 31 Dec Closing

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The last day of 2009 and for that matter this decade saw Indian markets trade well above the dotted line throughout the session and close strongly into the positive. While the BSE Sensex closed higher by around 120 points (up 0.7%), the NSE Nifty gained around 30 points (up 0.6%).

The BSE Midcap and BSE Smallcap indices also registered gains of around 0.3% and 0.6% respectively. While capital goods and auto stocks led the pack of gainers, FMCG and healthcare stocks were at the receiving end today.

Barring Japan, other Asian indices closed in the positive today. European markets have opened on a mixed note. The rupee was trading at 46.63 to the US dollar at the time of writing.

After a dismal 2008 led by the credit crisis that saw countries sinking into recession and stockmarkets plunging, 2009 witnessed a dramatic turnaround. But this turnaround was more pronounced in the global stockmarkets as many of them rallied on expectations that the global economy is on its way to recovery. Emerging markets in general and India in particular notched spectacular gains during the year. Because the US and Europe are still to come out of the slump, investors poured money into emerging economies including India due to the growth potential in these countries. Interestingly, earnings growth of companies, though better than in 2008, did not really grow at the same pace as their valuations. As a result, valuations in the emerging markets have begun to look frothy.

During 2009, the BSE Sensex and the NSE Nifty notched gains of around 80% and 75% respectively. For propagators and believers in long term investing, we have something good to share. The Sensex has recorded gains of almost 250% in the past decade. To put in differently, had you invested money in Sensex stocks at the end of 1999, every Rs 100 would have turned into Rs 350 today. And mind you, this is after the Indian markets faced a scam, a dotcom bubble burst, and very recently a worldwide financial crisis.

Among pharma companies, Dr. Reddy's emerged the top gainer in 2009 with returns of almost 145%. Not only did the company report a strong performance during the financial ended March 2009, it did well during the first half of FY10 as well. The key contributors to growth have been the US, India and Russia and these will continue to enhance the company's performance in the future as well. Having said that, Betapharm in the German market has been under a lot of pressure due to changes in the regulatory landscape in that country and performance of this market in the near term looks uncertain. Dr. Reddy's custom manufacturing business which grew at a subdued pace during the first half is poised to do much better in the second half of this fiscal. Not just that, in the US generics market, the company also stands to benefit from some product launches that have limited competition.

The sector that was witness to one of the one worst investor apathy in 2009 was telecom. The heavyweights in the sector including Tata Communication and Reliance Communication lost 33% and 24% respectively during the year. Bharti Airtel that was amongst the most resilient telecom stocks lost 9%. Whether or not Bharti will continue to be the dominating player after fifteen years is practically an impossible call to make at present. However, one cannot discount the early mover advantage and the result of which the company has a strong reach as well as a good brand positioning. All this, we believe, will help the company in not just surviving the ongoing price war, but also emerging much stronger when the dust settles.